Wildfire Mitigation Discounts Too Low, Insurance Companies Fail to Explain How They Rank Homeowners' Wildfire Risk, Consumer Watchdog Challenges

LOS ANGELES, May 1, 2024 /PRNewswire/ -- Consumer Watchdog challenged State Farm's failure to properly disclose or explain to consumers the basis for their wildfire risk classifications. The group filed a Petition for Hearing on the company's wildfire mitigation discount filing required by California Department of Insurance rules. The Petition also challenged the amount of the proposed mitigation discounts as too low.

Consumer Watchdog's challenge follows prior challenges to Farmers' and CSAA's pending mitigation discount filings. Under those pending filings, policyholders would be required to pay a nonrefundable fee for a home inspection to verify any discounts. Under Farmers' filing, many homeowners' discounts would be negated by the inspection fee.

Additionally, Consumer Watchdog challenged State Farm's failure to disclose the models it uses to classify homes based on their wildfire risk. Without access to the models, it is impossible to properly assess State Farm's wildfire risk classifications, or for policyholders to meaningfully contest their classifications.

"When homeowners mitigate their properties, everyone benefits," said Consumer Watchdog staff attorney Ryan Mellino. "The Commissioner must require State Farm to follow the law and explain in detail a homeowner's wildfire risk classification, what they can do to protect their homes, and offer meaningful discounts when homeowners act to reduce their risk."

Voter-approved Proposition 103 authorized public participation in rate oversight, which allowed Consumer Watchdog to scrutinize and challenge the filings. 

Consumer Watchdog has called for legislation to require home insurance companies to offer coverage to any consumer who meets the "Safer from Wildfire" home hardening and wildfire mitigation standards approved by the Department of Insurance in 2022.

The "Safer from Wildfire" regulations require insurers to recognize property and community level wildfire mitigation efforts with discounts, to provide policyholders a detailed written explanation of why a policyholder received a certain wildfire risk classification - including by referencing specific features of the property, and to inform consumers of steps they can take to reduce their risk and lower their premiums.

Most insurance companies' discount filings have not yet been approved by the Department of Insurance. Despite substantial efforts made by homeowners across the state to harden their properties against wildfires and clear brush to reduce risk, many homeowners continue to see drastic rate increases without commensurate, or any, recognition of their mitigation efforts.

Policyholders are also being nonrenewed with no specific explanation aside from general statements about wildfire risk. For example, Deborah, a State Farm policyholder in Santa Cruz, recently received a nonrenewal notice with no option to take any action that would allow her to keep her policy.

The only specific reference to Deborah's property's wildfire risk in the nonrenewal notice stated: "The range of available premium adjustments is currently -41.7% to 376.9%, and [based on your address,] your adjustment is 25.9%." 

A range of numbers is essentially meaningless, said Consumer Watchdog, as it gives homeowners no information about why a property was assigned a certain wildfire risk. Deborah's story is unfortunately familiar to too many homeowners across the state. 

In the Petitions for Hearing, Consumer Watchdog also challenged the amount of the mitigation discounts offered by State Farm and Farmers as insufficient. State Farm currently offers up to a maximum 5% discount for completing five property-level mitigation efforts; in its new filing, the company proposes to reduce its maximum discount to 4.3% for completing ten property-level mitigation efforts. In other words, State Farm wants policyholders to do more work for less savings. 

State Farm's filing would also require homeowners to pay $125 for an inspection by the Insurance Institute for Business & Home Safety ("IBHS") to potentially qualify for a larger mitigation discount.

Farmers and CSAA go even further. Their filings seek to require all homeowners to pay for an IBHS inspection to qualify for any mitigation discounts, including those required by law. The average proposed discount for Farmers SmartPlan Home policyholders living in a high fire risk area is approximately $125 over three years, equal to the $125 IBHS fee which is paid every three years.

In fact, Farmers is currently threatening to non-renew some homeowners unless they meet the IBHS requirements within three months. Jennifer, a Farmers policyholder in Calabasas, was given that ultimatum in December 2023.

IBHS promotes its product to insurance companies as placing the burden of verification on consumers. It offers no guidance to consumers beyond a one-size-fits-all checklist of steps to take. And the short time frame imposed by Farmers leaves homeowners little time to get necessary approvals from HOAs or government entities for the potentially extensive changes to their properties the IBHS standards require, let alone get the work done. Consumers must pay for the inspection whether or not they are ultimately certified.

Since IBHS offers no individualized assistance, Jennifer was left to struggle to figure out what was actually required for her to meet the certification. Then she had to pay the $125 nonrefundable fee to IBHS to have an inspector visit the property. Her insurance agent had to repeatedly contact the company to act on her application, which they barely certified in time. 

Download and read the State Farm, Farmers, and CSAA Petitions for Hearing. 

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SOURCE Consumer Watchdog